The tech stock rally reflected in the Nasdaq had persisted until last week – but has largely faded. Money Morning Chief Investment Strategist Keith Fitz-Gerald joined Fox Business’ "Varney & Co." to explain what's going on. Watch this clip to see what Fitz-Gerald tells investors about tech stocks – with a special look at Cisco […]
Archives for May 2012
May 2012 - Page 10 of 15 - Money Morning - Only the News You Can Profit From
The JPMorgan (NYSE: JPM) Losses: Here’s What Happened
Yesterday's announcement by JPMorgan Chase & Co. (NYSE: JPM) that it lost $2 billion on a "hedge" position is not only surprising, it's frightening.
I'll try and make this short and easy to understand, but the truth is that it's complicated. If we have a decent idea about what happened (and I do), it's bad. And if it's a tip-of-the-iceberg thing (which I don't believe it is), it could be really, really bad.
Investors put on hedges all the time. In fact, in our investment services like the Capital Wave Forecast we put on essentially the same type of "economic" hedges that JPM CEO Jamie Dimon is saying blew up on them. The economic hedges we put on are essentially hedges against long positions we hold.
For example, if I see some potential danger ahead, then I recommend we buy some protection, like buying the VIX in anticipation of rising volatility, or buying puts on broad market indexes.
The broad protective measures we take are economic hedges because they are not specific hedges designed to hedge potential loss in any one position. For example, if we owned JPM stock and we wanted to hedge our position, we might buy puts on JPM, or sell calls, or employ another specific hedge against our long position.
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Facebook Takes a Step Closer to Its Own Search Engine
And Facebook's reach grows bigger…
Microsoft (Nasdaq: MSFT) announced this week it is revamping its Bing search engine to include content from Facebook and other social media platforms.
The move introduces a new sidebar to Bing, which aims to connect users with friends and other aficionados who can provide help, assistance and advice related to the performed search.
The Redmond, WA-based Microsoft said the foray is based on the fact that "90% of people consult with a friend or expert before making a decision."
The venture will hopefully give Bing some bang. Data reveals that Bing has about 15% of the U.S. search market, while Internet search behemoth Google (Nasdaq: GOOG) commands a 66% portion. Microsoft is hoping many will likethe new element and it will entice people to favor Bing when Web searching.
The new service will appear to the right of all search results, and will highlight a feature dubbed Friends Who Might Know.
Microsoft wrote on its blog, "Bing suggests friends on Facebook who might know about the topic-based on what they "like," their Facebook profile information, or photos they have shared so you can easily ask them about relevant experiences and opinions. For example, if you're searching for diving spots in Costa Rica…you may discover that one of your friends knows a great spot, based on photos from their last trip."
Bing will also flag other topic "specialists," identified from their posts on Google's social network Google+, Twitter, Foursquare, LinkedIn and Quora.
The feature will roll out shortly in the United States, according to Microsoft. The company did not comment about other locations.
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Warren Buffett Stocks: The Oracle of Omaha Sees Something in Avon
Just one month after Coty Inc. got the big kiss-off from Avon Products (NYSE: AVP) following a $10 billion offer for the company, Coty called again – and name-dropped in a gussied up proposal.
On Thursday, privately held Coty came courting Avon once more with a beautified bid of $10.7 billion and the backing of none other than iconic investment guru Warren Buffett.
In a letter to Avon's board, Coty listed Buffett's Berkshire Hathaway (NYSE: BRK.A, BRK.B) as a new equity financing provider, along with German conglomerate Joh A. Benckiser and other anonymous clients of BDT Capital Partners.
Buffett and other financiers helped push up Coty's newest offer from $23.25 a share to $24.75 a share, a 36% premium to Avon's share price before the original offer was publicly disclosed.
Coty has made it quite clear how much it wants Avon, and adding Buffett to sweeten the deal could be what finally works.
"I don't think there's any better way to get Avon's attention than to say, "I've got the smartest investor in the world, with the deepest pockets in the world behind me, listen up,'" Jeff Matthews, author of "Secrets in Plain Sight: Business & Investing Secrets of Warren Buffett," told Bloomberg News.
Buffett's Rare Move
The Buffett move is a rare change for the deal maker who customarily shies away from hostile bids, and who is usually an outright buyer instead of financier.
But Buffett was won over by BDT's founder, Byron D. Trott, Berkshire's favorite banker.
"He understands Berkshire far better than any investment banker with whom we have talked and – it hurts me to say this – earns his fee," Mr. Buffett wrote in his 2003 letter to shareholders.
Buffett's previous financing ventures include helping Mars Inc.'s $23 billion takeover of the Wm. Wrigley Jr. Company in 2008, and providing about $3 billion in equity financing to Dow Chemical Co.'s (NYSE: DOW) $15.4 billion takeover of fellow chemical maker Rohm & Haas.
The Coty letter said the new deal would "provide compelling value to Avon's shareholders" compared with Avon's other option, "a difficult and uncertain multi-year turnaround on a stand-alone basis."
"Given the challenges facing your business, we believe the premium is even higher when considering your potential stock price in the absence of a possible transaction," Coty chairman Bart Becht wrote to Avon.
Avon appeared not to be threatened, and said it would consider the letter in due course.
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Low-Float Stocks: Why Investors Can't Ignore the Risks
While often ignored in the financial media, "low-float" stocks should be in every investor's vocabulary.
The reason is simple. Low-float stocks tend to be much more volatile than stocks with larger floats.
Simply put, the "float" of a stock is the number of shares available to the public for trading.
It doesn't count shares owned by company officers and insiders.
In this case, it boils down to a question of supply and demand. Because of their limited supply, stocks with small floats can make major moves-either to the upside or downside.
Some companies exploit that same volatile potential in their initial public offerings (IPOs). Last year many tech companies used low floats in their IPOs to ensure a big first-day pop in the stock price.
"The more you constrain demand, the more likely, especially in a retail-oriented name, you're going to see a spike in price," Paul Deninger, a senior managing director at Evercore Partners Inc., told Bloomberg News.
The strategy worked for LinkedIn Corp. (NYSE: LNKD) last May.
With a tiny float of just 7.8 million shares – less than 10% of the shares outstanding – LinkedIn more than doubled its IPO price in its first day of trading.
An even more extreme example of using a low float to drive up an IPO was Caesar's Entertainment Corp. (Nasdaq: CZR) in February.
The initial float for Caesar's was just 1.8 million shares, a mere 1.4% of its shares outstanding. CZR doubled in price during its first day, and closed up 71%.
"I've never seen anything like it," Morningstar Inc. analyst Chad Mollman told The Wall Street Journal, in reaction to the low float. "I've been following IPOs, and we couldn't believe it when we saw it. You're creating an artificial demand and supply imbalance that leads to speculation."
The Perils of Low-Float Stocks
But when share prices get inflated by such artificial means, the bubble-like valuation leaves it vulnerable to steep and sudden drops. If a low-float stock gets hit with bad news, it can plummet as quickly as it rose.
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Investing in Semiconductor Stocks: Three Chipmakers on the Upswing
Global semiconductor sales have been pretty listless lately, but new data suggests a turnaround is on the horizon for this sector.
In fact, one new forecast by research firm IDC predicts the rate of growth in the semiconductor sector could potentially double in the latter part of this year.
For semiconductor stocks, this newfound growth could provide a big lift in profits.
Even smaller chipmakers may have suitors knocking on their doors for takeovers as they look to increase their market share.
What does this mean for investors?
Now is the time to start looking for the next big winner in semiconductors.
Here's why.
Semiconductor Stocks in 2012
According to IDC,semiconductor sales increased 3.7% to $301 billion last year thanks to increased orders for wireless-device chips.
But 2012 looks even better. The forecast has worldwide semiconductor sales increasing 6%-7%. This will come from declining customer inventories and the never-ending demand for smartphones, tablets and "iDevices."
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Everything You Need to Know About Gold Prices
Gold's hot. Then it's not. Now what?
Where did the love for the shiny metal go?
Now the gold bugs are crying, and the "I told you so crowd" is warming up in the wings.
After a stunning rally to $1,895/oz., gold prices are down hard, falling below $1,600/oz. That's a 16.11% drop that has the gold bears drooling for more-but probably not for long.
Let's start with gold prices themselves. Right now they're down three months in a row and many gold investors fear there's no bottom in sight.
What they don't realize is that the fall in gold prices is as rare as proverbial hen's teeth. This is the first time we've seen gold prices tumble three months in a row since March of 2001.
In fact, since 1957 we've only seen gold prices fall three months in a row 65 times out of a total of 661 three-month periods, according to data compiled by Bloomberg and Standard and Poor's.
But here's the thing about gold prices…
Gold could fall all the way through May, turning what it already a rare occurrence into an ultra-rare occurrence.
Would that be a bad thing? In the bigger scheme of things, not really.
People forget that gold prices fell by more than half from 1975 to 1976, and were down 17 out of 24 months. At the same time, gold prices also recorded 10 three-month declines during the period.
That was, incidentally, right before gold rose 721.25% to $850.00/oz.– a peak gold hit on January 21, 1980.
The point is, bear tracks always precede bull market runs. So I am not especially concerned by this pullback in gold.
In fact, as you can see from an earlier forecast, we're right on target with my expectations for gold this year.
Take a look at what I shared with my readers on January 2, 2012:
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Gold Prices to Break $2,000: Here's How You Can Profit
Gold prices are still far from last year's record $1,920.30 an ounce.
Given the economic volatility in 2011, last year was a banner year for gold prices. Fears of global market turmoil helped push the yellow metal to record highs.
While the long-term bullish outlook for gold remains, short-term pressures have halted its steady climb.
"Gold has found more support recently, but it doesn't have all of the catalysts in place to be driven substantially higher yet," Suki Cooper, an analyst at Barclays Capital, told Reuters.
Here's why this dip isn't the start of a bearish gold year. Instead, it's a chance to stock up before gold prices head to $2,000 an ounce. (Want to know the best way to profit from soaring gold prices this year? Take a look at our latest special report today. It shows you how to get daily market information and specific recommendations in gold… silver… penny stocks… Asia… and biotech, to name just a few. Find the report right here.)
The Fed, India, and Gold Prices
For the next three months, the U.S. Federal Reserve is focused on a stabilizing U.S. economy and low inflation. In fact, the Fed's most recent forecast cooled talk of more monetary stimulus (or "quantitative easing").
The Fed expects U.S. economic growth to progress at a steady pace throughout the quarter. With moderate expansion rather than rapid growth or deflation, there's no need to curb borrowing, and Federal Reserve Chairman Ben Bernanke plans to keep interest rates near zero.
This bodes well for the U.S. dollar, and what's good for the dollar is often bad for gold prices.
It's no secret that a weakened dollar sends investors running to the real value of hard commodities. A stronger dollar does the inverse: It causes the big investors to be less cautious with regard to investments in liquid capital, creating a dip in gold prices.
Facebook App Store Will Boost Popularity, Profit
Is there anything Facebook can't or won't do to keep its massive user base happy?
The social network giant just announced plans for a new Facebook App Store where Facebook friends can purchase games and other applications on its heavily trafficked site.
The new Facebook App Store, which will be formally known as the Facebook App Center, will feature applications for web browsers, and be available via the Apple Inc. (Nasdaq: AAPL) iPhone, Android smartphones, PCs and tablets.
The move will provide a platform for software developers to sell their products on the social site.
With over 900 million users worldwide, the new Facebook App Center opens up an alluring venue for developers and entices the social networking Web site's scores of members to keep coming back for new, current and popular applications.
Facebook's App Store is being launched in the midst of the company's highly anticipated, much-hyped initial public offering, expected on or around May 18.
And the Facebook App Store in not merely in the works, it is set to roll out in the next few weeks.
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The Biggest Threats Cisco Systems (Nasdaq: CSCO) Needs to Overcome
There was nothing to scoff at in Cisco Systems Inc.'s (Nasdaq: CSCO) third quarter earnings – but the company's disappointing outlook put Wall Street on alert.
Cisco, the world's leading maker of networking devices that support Internet traffic, reported healthy fiscal third-quarter numbers after the close yesterday (Wednesday). Cisco posted a profit of $2.2 billion, or 40 cents a share for the quarter that ended April 28, up from $1.8 billion or 33 cents a share in the same period a year earlier.
Per-share earnings rose from 42 cents to 48 cents, and revenue jumped 6.6% to $11.59 billion. The company's product segment, its biggest top-line contributor, enjoyed a 5% increase, while its service segment's revenue swelled by 13%.
But the company's outlook fell short of expectations, sending shares sliding lower by more than 8% in after-hours trading to $17.18. And that decline could continue if Cisco doesn't address some key areas of concern.
"While Cisco seems to be making considerable headway on improving gross margins, we expect a number of uncertainties could continue to weigh on the stock," Scott Thompson of FBR Capital told Barron's. Thompson cut his CSCO price target to $20 from $22.50.
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